Continued Hospital Expansions Raise Cost Concerns in Indianapolis

In January 2005, a team of researchers visited Indianapolis, Indiana,
to study that communitys health system, how it is changing and the effects
of those changes on consumers. The Center for Studying Health System Change
(HSC), as part of the Community Tracking Study, interviewed more than 95 leaders
in the health care market. Indianapolis is one of 12 communities tracked by
HSC every two years through site visits. Individual community reports are published
for each round of site visits. The first four site visits to Indianapolis, in
1996, 1998, 2000 and 2002, provide trend information against which changes are tracked. The Indianapolis market encompasses Boone, Hamilton,
Hancock, Hendricks, Johnson, Madison, Marion, Morgan and Shelby counties.

ntensifying competition among hospital systems and the entrepreneurial activities
of physicians are raising questions about the affordability of Indianapolis health
care system. Two years ago, hospitals and medical groups were busy developing new
specialty facilities and services, while health plans and employers took few steps to
check rising costs and insurance premiums. Since then, hospital competition has
continued to fuel facility expansions, but many providers also are collaborating on
clinical data-sharing initiatives that hold promise for improving care delivery. This
juxtaposition raises both concern and enthusiasm for the future of health care in
Indianapolis.

Other significant market developments include:

National health plans stimulated competition in the insurance market at the
expense of some local plans and third-party administrators.

An employer consortium pushed for provider performance reporting and new
insurance products that reward quality and efficiency.

Reforms at the county hospital alleviated financial difficulties and prompted
changes in the local safety net.

he building spree that spawned four
new heart facilities in Indianapolis two
years ago has continued unabated, raising
concerns that these expansions will
generate further increases in health care
costs. The areas four private hospital
systems have committed more than $1
billion for current and planned projects
to build new general hospital facilities,
expand existing medical campuses and
renovations.

Much of this activity is focused
on the growing suburban areas of
Indianapolis, where hospitals are intensifying
competition for profitable, privately
insured patients.

Clarian Health Partners, which
lacked a presence outside the central
city, has pursued one of the most
aggressive expansion strategies. Clarian
opened a new 80-bed hospital in the
western suburbs at the end of 2004 and
will open a new 175-bed facility in the
northern suburbs in late 2005. These
expansions are expected to improve
the systems base of privately insured
patients, which has eroded in recent
years because of affluent residents
moving to the suburbs and growing
numbers of publicly insured and
uninsured patients who are diverted
to Clarian from the county-owned
Wishard Hospital during periods of
peak demand. Clarian also is upgrading
facilities on its main campus downtown,
including a new cancer hospital
to replace an existing cancer center and
a new tower at its childrens hospital.

Clarians competitors have followed
suit with their own efforts to expand
and improve facilities. Community Health Network is expanding its
northern suburban campus from 200
to 350 beds at a cost of $170 million.
Meanwhile, St. Vincents Health System
recently opened a new childrens hospital,
expanded its orthopedic surgical
facilities, and acquired Womens Hospital
for renovation and conversion to private
obstetrical rooms. Finally, the St. Francis
Hospital System recently completed a
new facility in western Indianapolis and
is expanding its existing campus in the
southern part of the city.

This most recent wave of hospital
expansions threatens to erode the
geographic segmentation that historically
has kept the four major hospital
systems on relatively friendly terms.
The St. Vincents system, which has
long dominated the northern suburban
areas of the city, will soon face heightened
competition from one of Clarians
new facilities and a physician-owned
orthopedic hospital scheduled to open
in 2005. Community Heath Systems
large expansion in the northeastern
suburbs also may allow it to capture
patients that formerly would have gone
to St. Vincents or Clarian facilities.
Some observers speculated that the
heightened hospital competition may
provide health insurers with increased
leverage in negotiating price concessions,
potentially allowing the development
of health plan networks that
exclude one or more of the major systems.
Others, however, expect that hospital
systems considerable geographic
segmentation in other areas of the
state, combined with strong consumer
preferences for broad choice of providers,
will allow hospitals to continue to
resist selective contracting.

The new heart facilities that opened
in Indianapolis during the past two
years have had relatively little impact
on the financial performance of community
hospitals to date, despite
considerable fears to the contrary.
Although four new facilities opened
during this period, three of them were
replacements for existing service lines,
so the net increase in cardiac surgery
capacity within Indianapolis has been
modest. The fourth facility, a joint
venture by St. Vincents and a prominent
cardiology group, has redirected
a significant amount of patient volume
from St. Vincents main hospital to
the new facility. Nevertheless, both
partners in the joint venture appear
satisfied with its performance and are
already considering an expansion of
the facility.

Joint ventures between Indianapolis
hospitals and physicians have continued
as physicians seek additional
revenue from inpatient and outpatient
facility fees and hospitals attempt to
strengthen physician loyalty and avert
competition from wholly physicianowned
facilities. In the past, these
ventures have focused primarily on
developing specialty facilities, such as
heart hospitals and ambulatory surgery
and diagnostic centers, but several
recent ventures have formed for the
development of new general community
hospitals. The new Clarian North
and Clarian West suburban hospitals,
for example, are both organized as forprofit
joint ventures between individual
physician investors and the nonprofit
Clarian system.

The array of expensive capital
expansion projects underway in
Indianapolis threatens to push the
already high cost of health care even
higher. According to health plan
respondents, hospitals already are
demanding large payment rate increases
to help finance expansions, and
some observers feared that costs will
accelerate further because of increased
utilization stimulated by physicianowned
facilities. On the other hand,
some hospital systems are concerned
that the expansions are generating
excess capacity that ultimately will
strengthen the ability of health plans to
suppress provider payment rates.

espite the increasingly competitive
hospital environment, Indianapolis
providers are working together on
community-wide clinical data-sharing
initiatives designed to improve care delivery. These initiatives are an
outgrowth of decades of work conducted
by the Regenstrief Institute in
Indianapolis, which was founded in
1969 by a local philanthropist.

Five data-sharing initiatives are
currently underway, the most expansive
of which is the clinical messaging
system developed by a consortium of
local physicians and other health care
entities known as the Indiana Health
Information Exchange (IHIE) in collaboration
with the Institute. This system
allows the secure transmission of
laboratory and imaging tests and consultation
data from any participating
data provider to individual physician physicians
offices, reducing the need for duplicative
diagnostic tests and enhancing the
coordination of care across settings.
The data providers, which include
laboratories, diagnostic facilities, hospitals
and specialist physicians, pay a
fee to subscribe and designate which
physicians are to receive the clinical
information they generate.

The system allows physicians to
receive data into e-mail accounts or
directly into electronic medical records
and to forward data to other physicians,
along with medication lists, patient
notes and text messages. All four of
Indianapolis private hospital systems,
plus the county-owned Wishard Health
Services, are expected to participate in
the effort. IHIE has enrolled approximately
half of Indianapolis 3,500 physicians
as data users in the system and
is expected to enroll the remainder of
physicians during 2005.

Other community-wide data-sharing
initiatives include:

A clinical data repository for emergency
department care that collects
data from all five hospital systems and
allows emergency physicians to access
data to improve coordination of care;

A surveillance system that compiles
clinical data from emergency departments,
ambulance runs, laboratories
and pharmacies for use in detecting
disease outbreaks; and

The Indiana Network for Patient
Care, a new initiative with the goal of
developing a community-wide electronic
medical record system.

Alongside these community-wide
initiatives, Indianapolis providers are
investing heavily in their own clinical
information technology applications.
All of the local hospital systems
and several large medical groups have
begun implementing some form of
electronic medical record. The hospital
systems also have developed various
systems for sharing imaging and laboratory
information across individual
hospitals and with their affiliated physicians.
Moreover, several of the new
specialty hospitals are, or are expected
to be, fully digital, with the capacity to
transmit images, implement automated
patient monitoring systems in critical
care units and allow bedside electronic
charting. Hospitals expect these information
technology investments to
strengthen their long-standing quality
improvement efforts and foster participation
in a range of quality reporting
programs, including those maintained
by accreditation agencies, Medicare
and commercial insurers.

These clinical data-sharing initiatives
place Indianapolis far ahead of
most other communities in the use of
information technology to enhance
care delivery. These initiatives hold
considerable promise for improving
quality and efficiency over the long
term as more providers adopt and
use the technologies in routine clinical
decision-making. However, few
observers expect these initiatives to
have much near-term impact on health
care costs in Indianapolis.

istorically, national health plans
have had limited success in this market
because of the dominance of
Indianapolis-based Anthem BlueCross
BlueShield, the considerable market
leverage of local hospital systems
and the strength of several providersponsored
health plans affiliated with
these systems. Over the past two years, Anthem has strengthened its position
in the market, but several national
health plans have made inroads in
Indianapolis at the expense of local
competitors. Observers expect that
stronger national health plans could
stimulate the development of new
health insurance options for employers
and consumers and place increased
pressure on hospitals and physicians to
contain costs.

Anthem has strengthened its longdominant
position by winning the
accounts of several large local employers
over the past year, including pharmaceutical
company Eli Lilly and the
Marsh Supermarkets chain. These
employers formerly contracted with
local third-party administrators (TPAs)
to manage their self-funded health
benefits. Employers and insurers attribute
much of Anthems recent membership
growth to its ability to negotiate
price discounts with hospitals and
physician groups—an advantage that
has become increasingly attractive to
employers faced with annual, doubledigit
increases in health insurance premiums.
Anthem reportedly maintains
most-favored nation clauses in some
of its provider contracts, which assure
the plan of receiving the largest price
discounts offered to any insurer in the
market.

Anthems 2005 merger with
California-based WellPoint Health
Networks has had little immediate
impact on the insurers market clout
in Indianapolis. WellPoint had little
membership in Indianapolis prior
to the merger, so the merger did not
increase Anthems local market share
significantly. Nevertheless, some hospitals
and physicians expressed concern
that the merger may lead the insurer
to become more forceful in dealings
with providers. Anthem so far has
avoided aggressive cost-control tactics,
such as selective contracting and tiered
networks, and it has taken few steps
to curb the costly facility expansions
and improvements in Indianapolis.
Anthems ability to use its dominant
market position for cost containment
remains limited by the considerable
market power of hospital systems
across the state and by the reluctance of
local employers to restrict consumers
choice of providers.

Several other national plans have
expanded operations in Indianapolis,
raising the possibility of increased
competition among insurers. Several
years of healthy profits reportedly
have made insurers more willing to
compete for market share, signaling
a turn in the health insurance underwriting
cycle. Both UnitedHealthcare
and Aetna have stepped up marketing
activities in Indianapolis after scaling
back operations several years ago.
Moreover, Humana recently entered
the large-group market in Indianapolis
by winning the health benefits contract
for the employees of St. Vincents, one
of the largest employers in the market
and co-owner of the provider-sponsored
health plan that formerly held
the contract. St. Vincents decision to
contract with Humana reflects a diminishing
willingness to support its own
health plan when lower cost options
are available from other carriers.

The competitive pressures facing
Indianapolis provider-sponsored
health plans have continued to increase
over the past two years. Two of these
plansM-Plan, owned in part by the
Clarian and Community hospital systems,
and Advantage Health Solutions,
owned in part by the St. Vincents
and St. Francis systemsprimarily
sell health maintenance organization
(HMO) products to large and
mid-size employers that offer these
products alongside their more popular
self-funded preferred provider organization
(PPO) plans. In recent years,
some large private employers have
scaled back health plan offerings to
simplify administrative processes and
reduce costs, with some firms moving
their health benefits to national, multiproduct
insurance carriers that typically
offer premium discounts to employers
that purchase coverage from a single
carrier. As some business opportunities
with large employers decline, both
M-Plan and Advantage have begun to
develop lower-cost products designed to appeal to smaller employers, including
HMOs with deductibles and highdeductible
products with health savings
accounts. Still, provider-sponsored plans
remain popular insurance choices for
Indianapolis public employers and large
private employers.

Indianapolis employers have had little
success in reining in health care costs
over the past two years and express
growing concern about health insurance
affordability. Many employers
have experienced five to six straight
years of double-digit health insurance
premium increases.

Employers have responded by transferring
more costs to employees through
increased premium contributions,
higher deductibles and copayments, and
more restrictions on spousal coverage.
Several large employers, for example,
introduced new higher-deductible
health plan options for the first time in
2004 and 2005 so that employees would
have lower-cost alternatives to their
traditional health insurance products.
Similarly, the state has encouraged its
employees to enroll in products with
higher copayments in exchange for
lower premiums. Some small employers
reportedly have discontinued coverage
altogether in response to premium
increases, adding to the growing uninsured
population in Indianapolis.

Employers have engaged in a number
of past efforts to reform the health
care system collectively through purchaser
coalitions, but none has met
with much success because of divergent
employer interests and priorities.
Most recently, a consortium of local
employers, insurers and health care
providers, known as the Employers
Forum of Central Indiana, has tried to
stimulate improvements in the quality
and efficiency of health care delivery in
Indianapolis. During the past two years
the Forum has expanded its membership
to include many local public and
private employers, the Chamber of
Commerce, the Indiana Manufacturers
Association, the state, and major health
plans and providers. Eli Lilly and
General Motors, two of the markets
largest employers, are very active in the
Forum.

A major focus of the Forum has
been the development of insurance
products that use tiered-provider
networks or limited networks to steer
consumers to efficient and high-quality
providers. During 2004, the Forum
launched an initiative to generate and
report measures of clinical quality and
satisfaction for each of the physician
networks affiliated with Indianapolis
major hospital systems. The two provider-
sponsored health plansM-Plan
and Advantage Health Solutionspooled data to generate these reports,
which the Forum hopes to use as a
basis for developing tiered-network
health insurance products that offer
differential premiums and copayments
based on the quality and efficiency of
the provider network.

To date, these two health plans
have been the only insurers willing
to participate in the Forums quality
reporting project, and employers have
shown little willingness to introduce
performance reporting and tierednetwork
arrangements into the selffunded
PPO products that serve most
of their employees. Moreover, many
local hospitals and physicians continue
to resist the development of tiered networks,
and they face few incentives for
participating in such arrangements as
long as consumers can avoid these networks
by choosing the self-funded PPO
options offered by their employers. As
a result, the Forums activities are likely
to have relatively little impact unless
they are implemented by larger numbers
of health insurers and adopted by
employers in both fully insured and
self-funded products.

With few promising solutions on
the horizon, some local respondents
fear that rising health care costs will
soon become an economic development
issue in Indianapolis as businesses
look to lower-cost regions to
locate and expand. Health care costs
in Indianapolis and across the state reportedly are significantly higher
than in neighboring states, placing
the area at a competitive disadvantage
in attracting new businesses. General
Motors, for example, has publicly identified
Indiana as one of its highest-cost
markets for purchasing health care,
and observers fear this fact will drive
future decisions about plant expansions
and closures. Indianapolis has lost a
number of Fortune 500 companies in
recent years, heightening worries about
further job losses.

These concerns, combined with the
lack of successful private-sector solutions,
have led employers and others
to advocate for stronger legislative and
regulatory responses to health care
costs. The state Legislature already
has begun to consider bills that would
reinstate certificate-of-need (CON)
reviews for new health care facilities
and limit the ability of physicians to
refer patients to facilities in which they
have an ownership interest.

afety net providers in Indianapolis have struggled to accommodate
recent increases in the demand for their services and changes in the distribution
of patients across providers. Indianapolis major safety net hospitals and community
health centers have experienced increases in patient volume over the past two
years that they attribute at least in part to the economic downturn and resulting
increases in the uninsured population. Adding to this problem, the state eliminated
a policy of continuous eligibility for Medicaid in 2004 because of budget difficulties,
generating concerns that Medicaid-eligible individuals are losing coverage and
causing safety net providers to expend more resources to help eligible patients
re-enroll. With more patients to serve and more responsibilities to assume,
providers have looked for ways to leverage limited resources to expand capacity.

In recent years the increasing volume
of low-income patients, combined
with rising health care costs and
strained federal funding, has produced
multi-million-dollar annual deficits
at county-owned Wishard Health
Services, Indianapolis leading safety
net hospital and community clinic
network. To address these financial
difficulties, the hospital adopted strategies
to boost revenues and cut costs,
including stepped-up collection and
billing practices from third-party payers
and some staff reductions through
attrition. These strategies are credited
with reducing Wishards deficit significantly,
while allowing the organization
to maintain clinical capacity. In fact,
Wishard recently opened a new health
center to serve the communitys growing
Latino population.

As another part of its turnaround strategy,
Wishard recently increased cost-sharing
requirements for uninsured patients
participating in its Health Advantage program.
Health Advantage provides comprehensive
health care for low-income uninsured
people through Wishard Hospital
and affiliated community health centers.
The program has expanded considerably
over the past two years and now provides
health care to more than 50,000 people, or
half of the uninsured in Marion County.
To encourage patients to seek care appropriately
in cost-effective settings, Wishard
has increased copayments. For example,
copayments are now $10 for a primary
care visit and $100 for a visit to the emergency
department, which is waived if the
patient is admitted to the hospital.

Many community respondents view
the new cost-sharing expectations as
a reasonable strategy to maintain the
safety net and encourage the appropriate
use of services, yet there are still
concerns about the impact of copayments
on access to care. Though providers
will still treat patients who dont have
money for copayments, they acknowledge
that cost-sharing expectations
likely have led some patients to delay
or forgo care or to seek care elsewhere.
For instance, a free clinic that does not
charge for most services reported a
significant influx of patients following
Wishards copayment increases.

Health Advantage enrollees are receiving care from a broader array
of safety net providers for reasons
that go beyond the recent copayment
increases. While Wishard continues
to treat the majority of Health
Advantage enrollees, the programs
primary care network has expanded
since 2001 to include clinics operated
by the St. Francis, St. Vincents and
Clarian hospital systems and most of
the communitys independent health
centers. These providers receive $10
per month from Wishard for each
Health Advantage enrollee who selects
them as a medical home. Most of the
network providers reportedly charge
copayments that are comparable to
Wishards, but often can offer earlier
appointment availability and more
convenient locations, leading some
patients to choose them over Wishard.

For the most part, the non-Wishard
providers in the Health Advantage network
have accommodated additional
patients without difficulty. For example,
HealthNet, a federally qualified
community health center, has expanded
to meet growing needs over the last
few years and welcomes new Health
Advantage patients. However, recent
increases in Health Advantage patients
reportedly have strained the capacity
of at least some providers—including
a hospital emergency department
that does not participate in the Health
Advantage network.

While Health Advantage has broadened
the network of primary care
providers serving the uninsured in
Marion County, access to specialty care
remains a challenge. Reportedly, it is
not uncommon for Wishard patients
to face waits of four to six months to
access non-emergent specialty care.
To help connect low-income patients
with specialty services more quickly,
the Indianapolis Medical Society
Foundation launched a program
called Project Health. Modeled after
a similar program in Asheville, N.C.,
Project Health connects low-income
Indianapolis residents with donated
specialty care, prescriptions (with a
copayment) and ancillary services. The
program began in May 2004 and currently
has approximately 300 patients
enrolled. Though still small, the program
appears to reduce wait times for
specialty care dramatically, but it continues
to face challenges getting certain
types of specialists to participate.

Despite Wishards recent financial
improvements and other safety net
expansions, safety net providers in
Indianapolis face significant uncertainties
about the future. Indiana currently
faces large budget shortfalls for its
public programs, and many observers
expect that the governor will seek additional
cuts to the Medicaid program as
a result. Plus, there are concerns that
external federal, state and local funding
support for Wishard is not keeping
pace with demand for care. At the same
time, continued increases in health
care costs threaten to further erode
private health insurance coverage in
Indianapolis, placing added strain on
safety net providers.

The Community Tracking Study, the major effort of the Center
for Studying Health System Change (HSC), tracks changes in the health system
in 60 sites that are representative of the nation. This Community Report series
documents the findings from the fifth round of site visits. Analyses based
on site visit and survey data from the Community Tracking Study are published
by HSC in Issue Briefs, Tracking Reports, Data Bulletins and peer-reviewed
journals.

Community Reports are published by the Center for Studying
Health System Change: